NDS Acquisition: Cisco’s Second Chance?

Last week, Cisco announced it was planning to acquire NDS for $5Bn, its biggest acquisition since Tandberg in 2009.  It’s tempting to imagine that if Cisco had acquired NDS rather than Scientific Atlanta in 2006, it would be a lot further along with its Videoscape vision and strategy than it is today.  So will this be Cisco’s second chance at convincing the market that video is central to their business going forward?

At the beginning of 2012 Cisco was sitting on $46.7Bn cash; much of it overseas, so acquiring the UK based NDS makes sense putting some of that money to work.  NDS’s VideoGuard technology is not just a set top box and smart card product, it is an enabler of multi-screen content encryption and delivery.  Of all the companies working in this space, NDS has long been the most innovative – many of the advances of VideoGuard being driven by BSkyB and DirectTV.  Not only that, but NDS has a growing business in China and India.  Contrary to several commentator’s criticism that there are not enough synergies, Cisco’s Videoscape vision will no doubt get a boost from NDS’s multi-device DRM technology, product innovation, and international exposure.

Is the NDS acquisition too little, too late for Cisco’s video business?  Apple, Google, and Intel are all working on strategies to get a share of the content pie by delivering content directly to connected TVs.  Despite the impressive numbers in Cisco’s end of year results for FY2010, their stock price has consistently under performed over the past 12-18 months in comparison to other tech giants like Intel and Microsoft.  Investors are not buying John Chamber’s strategy and many commentators believe Cisco has lost its focus when it comes to their video business.  It does not help that Cisco has made some poor investment decisions in the consumer video segment recently, notably with Flip video and Umi video conferencing.  Their acquisition of Scientific Atlanta some 6 years ago has not resulted in an explosion of IP video innovation.

If Cisco conduct the NDS acquisition intelligently, by building on the target’s product innovation as they did with WebEx, then their Videoscape vision will get a significant boost.